Apollo Group profits up 45% in 3rd quarter

by Dawn Gilbertson - Jun. 30, 2009 12:00 AMThe Arizona Republic

Students continued to flock to the University of Phoenix in the spring, sending its parent company's revenue and profits soaring again.

Phoenix-based Apollo Group Inc. on Monday said net income jumped 45 percent, to $201.1 million, on a 26 percent increase in revenue for its fiscal third quarter that ended May 31. The company surpassed $1 billion in quarterly revenue for the first time, coming in at $1.05 billion.

The big driver: Enrollment in the school's degree programs jumped 22 percent, to 420,700, led by students seeking associate-degree programs. New student enrollment was up 23 percent. The growth has been fueled by the weak economy and increased, better targeted advertising by the University of Phoenix, including its "I am a Phoenix" branding campaign that went national in the quarter.

After a blockbuster second quarter, Apollo executives had tried to temper investor and analyst expectations about the third quarter and beyond, suggesting the gains might be hard to match. And analysts had begun to worry that enrollment growth would slow as the economy and job market recover.

But there were few signs of slowing in the March-May period for the company, one of Arizona's largest and richest based on market value. Revenue was up more than 20 percent for the third consecutive quarter, as were new student enrollments. The company's per share profit, $1.26, solidly beat analysts' expectations of $1.12 per share.

Apollo' s earnings were released after the stock market closed. The company's shares ended the day down 3.7 percent, to $65.99.

Company officials said Monday that early trends for the current quarter, which ends in late August, are promising.

Among the not-so-bright spots from the company's earnings report was a continued increase in its bad-debt expense. It went from 2.4 percent of net revenue a year ago to 3.4 percent. The company said that is still within its historical range of the past three years.

Another potential trouble spot: Apollo is close to bumping up to the government's limits on how much of its revenue can come from federal financial-aid programs. For-profit schools are limited to 90 percent, and if it surpasses that for two consecutive years, it will be ineligible for the programs.

Cappelli said Apollo likely will be close to that limit but will not exceed it in the current fiscal year. Last fiscal year it, was at 82 percent. The school is looking at scouting for more students that don't rely as heavily on financial aid, such as those in the military and those eligible for corporate tuition reimbursement.